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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

FTSE 100 hits lowest closing level of 2023 as interest rate rise fears grip markets – business live

Andrew Bailey Bank of England United Kingdom FCA United States Interest Rates Inflation Newsround The Bank of England the Treasury Committee
A trader work on the floor of the New York Stock Exchange
A trader work on the floor of the New York Stock Exchange Photograph: Brendan McDermid/Reuters

Afternoon summary

Time for a recap:

London’s stock market has posted its biggest one-day loss since March, dragging the FTSE 100 down to its lowest closing level of this year.

World markets are on track for their biggest daily loss of the year, as fears of looming interest rate rises grip investors. There have been heavy losses across Europe, while Wall Street’s S&P 500 has fallen by over 1%.

Danni Hewson, AJ Bell head of financial analysis, says:

“You know things are bad when you can count the stocks ending the day in positive territory on one hand.

London’s FTSE 100 saw just three stocks end the day in positive territory, with United Utilities and Severn Trent making up a touch of the ground lost since fears were raised about the financial health of Thames Water and supermarket giant Tesco proving that every little does indeed help.

It was with a sense of déjà vu investors ruminated over impending recession warning signs and a Fed back in hawkish form.

The selloff has been fuelled by a surprisingly strong US private sector jobs report, which showed that American companies added almost half a million jobs in June, twice as many as expected.

This labor market strength is likely to prompt America’s central bank to raise interest rates again soon, perhaps later this month.

The City are now fully pricing-in that UK interest rates will soar to 6.5% by December, up from 5% at present.

Two-year UK mortgage rates have risen again today, to an average of 6.52%, up from 6.51% yesterday, Moneyfacts reports.

And the interest rates on UK two-year government bonds has hit a 15-year high today, as gilts continued to be sold off by anxious traders.

Bank of England governor Andrew Bailey has said that inflation remains “way too high”. In an interview with BBC’s Newsround, Bailey said he understood that high interest rates were hurting households, saying:

I understand it is difficult. People are having to make very difficult choices about what they buy, what they need for their lives.

Bailey also warned that some retailers, such as petrol sellers, were overcharging customers, adding to inflation.

Here are the rest of today’s main stories so far:

Updated

FCA sets out expectation for "fair and competitive saving rates" after meeting banks

Britain’s financial watchdog has concluded its meeting with the UK’s top banks today, to discuss why savings rates are so low despite the rise in interest rates.

The Financial Conduct Authority has now issued a statement, saying the meeting was “constructive”, and that there are signs of “positive action” by banks and building societies.

The FCA also says that the UK bank chiefs “recognised that they needed to do more” to help savers.

Here’s the statement:

Many people are feeling the squeeze from rising interest rates and prices, so it is more critical than ever that they are offered fair and competitive saving rates. We held a constructive meeting today, which builds on work we have been doing over several months – to monitor the savings markets and the decisions made. We have challenged firms where their decision making has been slow.

Through preparation for our new consumer duty, which requires the firms we regulate to put consumer interests at their heart, we have started to see some positive action by banks and building societies to improve their rates, and to ensure their customers are benefiting from better value products. We now want to see that progress accelerate. We are also increasingly seeing customers switching their savings products to those with higher rates. We continue to urge savers to shop around to make sure they’re getting the best deal.

We want to see a competitive market with fair value retail banking products – and with banks helping consumers to access them. We discussed how our consumer duty will set a new standard for firms from the end of July, including on savings rates. We set out that expectation to bank and building society leaders in today’s meeting.

Those in the room recognised that they needed to do more to help their consumers access the best rates. We too recognise there is a need for further guidance, and will continue our focus on this.

We have previously committed to reporting at the end of the month on how the savings market is supporting savers to benefit from higher interest rates. We will set out then whether further steps are needed.

Updated

There are heavy losses across European markets.

Germany’s DAX has lost 2.5% while France’s CAC 40 fell by 3.1%, dragging the pan-European Stoxx 600 down by 2.4%

The oil price has also weakened today, on fears that higher interest rates will hit demand for energy.

Brent crude is down 1.5% at $75.4 per barrel.

FTSE 100's worst day since March

Newsflash: The UK’s FTSE 100 share index has posted its biggest one-day loss since the banking panic of March.

The index of blue-chip shares has closed down 161 points, or 2.17%, at 7,280 points, as anxiety over future interest rate rises grip the markets.

That’s the biggest fall since 15 March, and takes the index down to its lowest closing level since early November 2022.

As we’ve been covering through the day, surprisingly strong US job creation figures have left investors bracing for yet more interest rate rises in America.

Mining giant Glencore (-5.5%) was the top faller, followed by retail chain Next (-5.35%), copper producer Antofagasta (-5.34%) and gambling group Flutter (-5.32%).

Updated

Lavazza has warned over a double-digit drop in earnings this year amid surging coffee bean costs and said its prices are not set to come down for consumers until 2024.

The Italian coffee giant said it is braced for a hefty drop in underlying earnings over 2023 as it looks to limit price hikes.

It raised its prices by 6.2% in 2022, but saw its costs jump to 550 million euros – almost double its underlying earnings last year.

Giuseppe Lavazza, chairman of Lavazza, told PA Media that it has not risen prices further in 2023, but that this is impacting its profits as it faces “unprecedented” increases in coffee bean prices.

The selloff is continuing to gather pace in London too.

With around half an hour’s trading to go, the FTSE 100 is now down 166 points or 2.25% at 7,27 points, on track for its weakest closing level this year.

Here’s Michael Hewson of CMC Markets on today’s market selloff:

Fears over higher rates and slower growth has tipped the FTSE100 to its worst day since the big sell-off in March, as well as its lowest levels since then, as well as clobbering the FTSE250, with weakness manifesting itself across the rest of European markets, after last night’s Fed minutes showed that the decision to pause rate hikes wasn’t the cut and dried decision that many thought it was.

The clear willingness amongst many FOMC members to do much more on rates, and the clear hawkish guidance spooked markets and along with today’s bumper ADP payrolls report, cemented the idea that Fed officials are very serious about meeting their inflation target and the resilience of the labour market will only likely reinforce this view, as it will give the FOMC more latitude to be more aggressive when it comes to rates. This has also seen the DAX and CAC 40 slide back sharply, with the DAX falling to 3-month lows, while the CAC40 has undergone its worst day since the March sell-off.

Not only are we seeing US rates head higher, but UK rates are surging as well, and not just on the short end. While the 2-year gilt is now above 5.5%, and a new 15 year high, the 10-year gilt yield is back at the highs seen last October above 4.6%, as traders revise up their estimates of when the Bank of England is likely to stop hiking rates, with the latest being at 6.5% early next year.

This apparent willingness by central banks to crush demand, and risk pushing the economy into a recession to get inflation under control, is prompting investors to pare down their exposure to equity markets, hence today’s sell-off.

Back on Wall Street, the Dow Jones industrial average has now sunk by 1.4%, down 489 points at 33,799.

Microsoft are the only riser on the Dow (out of 30 companies)

Bitcoin has now fallen back from this morning’s 13-month high….

More Americans quit their jobs last month, the latest JOLTS report shows:

Total job openings fell, but remained high, at 9.824 million in May, down from 10.103 million in April.

World shares on track for worst day of the year

A quick recap on the situation, in a bad day for the markets.

Britain’s FTSE 100 share index is on track to end the day at its lowest level since last November.

The Footsie has now sunk below the 7,300 mark for the first time since March, and is down 145 points or 2% at 7,296 points.

Nearly every stock has lost ground, with house-builders and mining companies among the fallers.

Reuters is reporting that MSCI’S benchmark ACWI index of world shares is down 1.5% and on course for biggest daily fall of the year.

Shares are being hit by renewed fears that central banks will continue to raise interest rates as they battle inflation.

The latest US jobs data has fuelled this anxiety, with payroll provider ADP reporting that American companies added 497,000 jobs in June. That’s twice as many as expected, and the highest monthly total since February 2022.

This is causing a sharp selloff in the bond markets, and in shares.

Both the US and UK short-term government bonds have hit their highest levels in 15 years.

UK two-year bond yields have hit 5.51%, while US two-year Treasury bills are now yielding 5.06% – both the highest levels since 2008.

The money markets are now indicating there is a greater-than-evens chance that UK interest rates have risen to 6.5% before Christmas, up from 5% today.

That would be the highest level in 25 years….

Wall Street’s “fear index”, the CBOE volatility index, has hit its highest level in over a month.

Correction to previous post: German two-year bonds are trading at a yield of 3.3%, much lower than the UK’s 5.5%.

German 10-year bunds are trading at a 2.6% yield, compared to the UK’s 4.6% or 4% for US 10-year Treasuries.

Updated

UK government bonds continue to be pummelled.

The yield, or interest rate, on two-year UK gilts has risen to 5.51%, a new 15-year high, up from 5.36% last night.

That’s higher than comparible countries – US two-year Treasury bills trade at a yield of 5%, while Germany can borrow for two years at 3.3% (corrected).

Updated

Federal Reserve policymakers may well be dreading tomorrow’s jobs report now after today’s ADP number has coming in more than double the consensus forecast, says Craig Erlam, senior market analyst at OANDA.

Erlam explains:

FOMC policymakers, along with investors, may have been hoping the tide would now turn after such as intense tightening cycle over the last 18 months. But if the ADP report is anything to go by, we’re headed for another red-hot jobs report.

If a rate hike this month wasn’t already nailed on, it probably is now. The ADP isn’t often a great precursor to the NFP number but this is a report you simply can’t ignore. I’m sure everyone will be revising up their expectations on the back of it and wondering just how much longer this labour market resilience can last. How high must rates go?

Wall Street opens lower

Stocks have also opened sharply lower in New York, as investors fret that further interest rate increases are on the horizon.

The Dow Jones industrial average has shed 332 points, or almost 1%, to 33,956 points.

The broader S&P 500 index has also fallen 1%, while the tech-focused Nasdaq has lost 1.2%

Today’s stronger-than-expected ADP payroll report, showing private sector companies added 497,000 jobs in June, has spooked traders.

As we covered earlier, that’s more than double expectations, implying that further monetary policy tightening will be rolled out to cool the US economy.

The minutes of the Federal Reserve’s most recent meeting, released last night, indicated that officials intend to resume interest rate increases at future meetings to fight inflation, after pausing in June.

Updated

European markets are also taking a bath.

Germany’s DAX is down 1.75%, while France’s CAC has dropped by 2.4% and Italy’s FTSE MIB has lost 2%, as anxiety of rising interest rates hit shares across Europe.

US government bonds are also weakening, as traders react to today’s strong jobs report:

The unexpectedly strong 497,000 increase in the ADP measure of US private sector employment in June may be due to seasonal factors, rather than genuine labour market strength, economists say.

Leisure and hospitality firms added 232,000 new workers, which could well be due to a surge in summer employment….

FTSE 100 at lowest since March

Stocks have sunk deeper into the red, after today’s blisteringly hot US private sector payroll report (see earlier post).

Investors are concluding that good economic news is bad for the markets, as it means central banks will hike interest rates even higher to fight inflation.

The FTSE 100 index of blue-chip shares has shed 127 points, or 1.7%, to 7,315 points – the lowest since mid-March.

Only four companies, all utilities firms, are in the risers, with the other 96 members of the index losing ground.

Updated

Sainsbury’s denies being 'rip-off retailer'

Bosses at Sainsbury’s have said they are “not rip-off retailer” or “profiteers” as they defended the profit made by the retailer amid scrutiny over rising food prices.

At the retailer’s AGM today, the supermarket group’s chairman Martin Scicluna defended the industry.

Scicluna said:

“To be very, very clear, we are not profiteering and we are not rip-off retailers.

“We make 3p on every pound we sell. If we offered you something for £1, and I said I made 3p on that product, I don’t think you would call us a rip-off merchant or a profiteer, but some MPs have.”

Scicluna also defended the near-£5m pay deal for chief executive Simon Roberts.

He told shareholders today:

“What we are trying to do is focusing on rewards for Simon, the operating board, senior leadership and colleagues. That’s why our colleague pay has gone up 44% over the past four years.

“It is a lower fixed pay, around 19% of the total, but we incentivised Simon and the team with the bonus and LTIPs (long-term incentive payments) to make sure that we grow profits, because it is good for the company and means we can invest in innovation, technology and reward shareholders.

“All this is balanced and we try to do it in a proper way - because it comes through the board, I stand by it completely.”

Back in the UK, water company Severn Trent has avoided a shareholder revolt at its AGM today.

Over 95% of votes were cast in favour of the Directors’ Remuneration Report (its pay policy) with votes to reelect directors all at least 96% or higher.

CEO Liv Garfield got 99.96% support.

Updated

US private sector jobs growth smashes forecasts

Just in: American companies added half a million new jobs last month, which will add to pressure to keep raising US interest rates.

Payroll operator ADP has reported that private sector employment increased by 497,000 jobs in June, with annual pay up 6.4% year-on-year.

That’s more than twice as many new jobs as expected.

Nela Richardson, chief economist at ADP, says:

“Consumer-facing service industries had a strong June, aligning to push job creation higher than expected.

But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge.”

This may suggest that tomorrow’s official US jobs report, the non-farm payroll, will be strong – although there isn’t much correlation between the two reports…

Updated

Bloomberg are reporting that the UK government believes that Thames Water will be able to avoid being taken into public ownership.

The government now thinks that Thames Water will be able to raise the funds it needs to manage its debt pile and invest in improving infrastructure, people familiar with the situation have said.

More here: UK Government Believes Thames Water Can Avoid State Takeover

It emerged last week that contingency plans for the collapse of Thames Water had been drawn up by the UK government.

But, environment secretary Thérèse Coffey has told MPs this morning she has “full confidence in the financial resilience” of the water industry, after

She told the House of Commons:

“I think it’s important to put on the record that the Government has confidence in the financial resilience of the water sector industry and we will continue to have those discussions that are important.”

However, shadow environment secretary Jim McMahon argued that water privatisation had failed, saying:

“Since Tory privatisation water companies have racked up debts of over £60bn and every day we see 800 sewage dumps and lose over three billion litres of water in leaks. And the biggest leak of all? £72bn paid out to shareholders.

“And now Thames Water is on the edge as the money dries up.

More than half of renters strugging to make their housing payments

More than half (55%) of renters are finding it hard to make their housing payments, according to a survey.

Just over a third (35%) of homeowners with a mortgage said they find it difficult to afford their mortgage payments, the YouGov research indicated.

The survey of more than 2,000 people across Britain also asked people how hard they think it will be in 12 months to make their housing payments.

Around half (51%) of renters expect to find it difficult, as do 47% of mortgage holders, according to the findings in June.

Bitcoin has hit its highest level in 13 months today, rising by as much as 3.3% to hit $31,500.

After a bruising 2022, Bitcoin has gained almost 90% during 2023. It has benefited from interest by instituational investors, with BlackRock - the world’s largest asset manager - launching a U.S.-listed spot bitcoin exchange-traded fund (ETF) (details here).

Former star UBS and Citigroup trader Tom Hayes, the first defendant jailed during the Libor interest rate scandal, will have his case sent back to the Court of Appeal, Reuters reports.

The decision marks a turning point for the former trader, released from jail on licence in 2021 having served half of an 11-year sentence for conspiracy to defraud following a global investigation into Libor rigging [manipulating the London Interbank Offered Rate, which was used as a benchmark for borrowing costs].

The Criminal Cases Review Commission (CCRC), an independent body that investigates potential miscarriages of justice, said on Thursday the case had been referred to appeal “after a wide-ranging and complex review” that lasted more than six years.

Hayes said in a statement:

“I am delighted that the CCRC has referred my case back to the court of appeal today after a six and half year investigation,”

“It is now time for all those convicted of Libor rigging to get justice. Although we have all served our custodial sentence, the scars of our experiences remain today and continue to plague us.”

The commission’s decision comes after a court in the United States overturned the convictions of two other ex-traders, who were jailed in similar circumstances, and charges against Hayes in the US were dropped.

Updated

Here’s Althea Spinozzi, senior fixed income strategist at Saxo Bank, on the rising interest rates on UK government bonds:

Footballer-turned-property-developer Gary Neville fears that rising interest rates will chill the construction sector.

Neville, who is leading a £400m development in Manchester city centre, told Radio 5’s Wake Up To Money this morning that interest rate rises were causing “issues in the market”.

Neville explained:

“What will ultimately happen, is that development will stop for a period because people won’t want to borrow money at the interest rates that are available, which is really, really bad.

“We have to make sure that development continues because the construction sector is one of the biggest employers in this country.”

Back in the City, the latest London stock market flotation is something of a damp squib.

Money transfer group CAB Payments has raised £335m by selling almost 40% of its stock this morning, at a price of 335p per shares.

But there’s no sign of a first-day bounce – CAB Payments shares are down around 5% at 318p each, in its first day of ‘conditional dealing’.

Bhairav Trivedi, CEO of CAB Payments, says:

“Today marks an important milestone for CAB Payments as we celebrate our first day of conditional dealings on the London Stock Exchange.

Deciding to list signifies our confidence in the proposition we bring to clients and our new, enlarged investor base, as well as the confidence that we have in the UK as the home for innovative and growing global fintech businesses.

Full admission to the main market is expected on July 11.

Although shares are lower, it’s rather better than Deliveroo, who was dubbed “Flopperoo” after its shares fell by a quarter on their first day.

City authorities will be pleased to see a new company joining the ranks, given recent reports that some companies are considering relocating to the New York stock exchange last month.

Last month, natural soda ash producer WE Soda cancelled plans to list in London after a valuation dispute with investors.

UK borrowing costs hit 15-year high

UK government borrowing costs are rising again this morning, as the markets anticipate even higher UK interest rates.

The yield (or rate of return) on two-year UK gilts has jumped to 5.464% this morning, the highest since June 2008 (three months before the collapse of Lehman Brothers).

That will push up mortgage rates even higher, as two-year fixed-rate mortgages are priced off these gilt yields.

Ten-year government bonds are also weakening, driving their yields up to the levels seen in the panic after the mini-budget last autumn.

These rising bond yields also drive up the cost of servicing the national debt, and the cost of new borrowing to fund the deficit.

Yesterday, Britain sold a government bond at the highest rate since 2007, as markets demand extra returns in anticipation of further Bank of England rate rises.

Updated

Traders brace for UK interest rates to hit 25-year high of 6.5%

City traders are ramping up their bets that UK interest rates will peak at 6.5% by next March, which would be the highest in 25 years.

UK interest rate swaps now show a 67% chance of the Bank of England lifting rates to 6.5% in February 2024, Reuters reports.

Bank rate is currently 5% today, with the swaps market predicting a rise to 5.5% in August.

Rates haven’t been as high as 6.5% since 1998, shortly after the Bank of England was given independent control of monetary policy.

Such high borrowing costs would hurt growth and deal another blow to the UK housing market, adding to the mortgage timebomb and hurting housebuilding (as we just heard).

As we reported yesterday, JP Morgan has forecast rates could hit 7% if inflation remains stubbornly high.

Updated

HSBC and Lloyds lift savings rates ahead of FCA grilling

A couple of the UK’s biggest banks have this morning announced some increases in savings rates - possibly hoping this will help their case in front of the FCA today.

HSBC said it would be increasing returns on fixed-rate accounts and Isas, and offered a reminder that last week it increased interest on some instant access accounts.

It also said it continued to “proactively nudge its savers to review their account and highlighting other saving options within the bank which might provide greater returns for them” - essentially putting the onus on them to move within the bank.

Lloyds Banking Group said it was putting up variable and fixed-rates at both Lloyds and Halifax - however variable rate savers will have to wait until 20 July to feel the benefit. Even after that uplift Halifax’s Everyday Saver account will pay just 1.15% on balances up to £9,999 and Lloyds’ an even lower 1.1%.

UK house building slumps as rising interest rates rise

Ouch. British house building has fallen at the sharpest pace in more than 14 years, if you strip out the Covid-19 lockdown months, as higher borrowing costs hit demand.

Data provider S&P Global has reported that UK construction companies suffered a renewed decline in business activity during June, driven by “a steep and accelerated downturn in house building”.

Their latest survey of purchasing managers at construction firms has also found that new orders fell last month, for the first time since January.

The S&P Global/CIPS construction Purchasing Managers’ Index (PMI) dropped to a five-month low of 48.9 in June from 51.6 in May, showing the sector shrank last month for the first time since January. Any reading below 50 shows a contraction.

The house building component of the PMI tumbled to 39.6 from 42.7, its lowest since May 2020 – and before that, the lowest since April 2009, following the collapse of Lehman Brothers.

Many construction firms blamed weaker demand on rising borrowing costs and a subdued outlook for the housing market, the PMI report says.

The UK construction PMI to June 2023

Tim Moore, economics director at S&P Global Market Intelligence, says:

“Weaker housing market conditions in the wake of higher borrowing costs acted as a major constraint on UK construction output in June. Total industry activity declined for the first time in five months due to the steepest downturn in residential work since May 2020.

Aside from the lockdown-related fall in house building, the rate of decline was the fastest for just over 14 years.

Survey respondents widely commented on cutbacks to new residential building projects and more caution among clients in response to rising interest rates.

There may be some green shoots in the fight against inflation in the Bank of England’s latest survey of business leaders, just released.

The BoE’s ‘Decision Maker Panel’ shows that firms raised their prices by 6.9% year-on-year in June, down from 7.6% in May.

That suggests firms across the economy (not just customer-facing companies) slowed their price rises, but still lifted them much faster than the Bank’s 2% inflation target.

Looking ahead, businesses expect output price inflation to fall over the next year. Year-ahead output price inflation was expected to be 5.3% in the three months to June, down from 5.4% in the three months to May, the Bank reports.

Expected year-ahead wage growth slightly increased to 5.3% on the month in June (up from 5.2% in May) although the three-month moving average decreased by 0.1 percentage points to 5.3%, the DMP report shows.

Moneyfacts: two-year mortgage rates rise again

Two-year mortgage rates have risen a little higher today, to levels last seen in October after the mini-budget.

The average 2-year fixed residential mortgage rate has risen to 6.52% today, up from 6.51% yesterday, Moneyfacts reports.

But the average 5-year fixed residential mortgage rate remained steady at 6.02%.

Average savings rates have also risen, as bank chiefs prepare to face the FCA over claims that savers are unfairly missing out.

Here’s the details:

  • The average 1-year fixed savings rate today is 4.83%, up from 4.80% on Wednesday

  • The average easy access savings rate today is 2.49%, up from 2.48% on Wednesday

  • The average 1-year fixed Cash ISA rate today is 4.52%, up from 4.49% on Wednesday

  • The average easy access ISA rate today is 2.61%, up from 2.59% on Wednesday

Full story: UK banks to meet finance regulator as anger grows over savings rates

The chief executives of the UK’s largest high street banks will face the City watchdog today amid accusations they are ‘profiteering’ as savings rates offered to customers lag well behind surging borrowing costs.

Bosses including NatWest’s Alison Rose, HSBC UK’s Ian Stuart, Barclays UK’s Matt Hammerstein, and Lloyds Banking Group’s Charlie Nunn, will meet the Financial Conduct Authority (FCA) as they come under pressure to justify their decision to keep easy access savings rates low, while the cost of loans and mortgages has soared.

Smaller lenders including Nationwide have also been summoned to the meeting at the regulators’ headquarters in Stratford, east London, which will be led by the FCA’s executive director of consumer and competition, Sheldon Mills.

The meeting is part of the FCA’s investigation into the savings market, due later this month. But regulators also plan to warn lenders they will have to justify their pricing once new consumer duty rules come into force at the end of July.

The new regulations will force all City firms, including high street lenders, to show they are acting in good faith and prioritising customer needs, including their decisions on savings and mortgage rates.

All of the big four banks reported bumper profits in the first quarter of the year as they benefited from a surge in net interest income – which accounts for the difference between what it pays savers and what it charges borrowers.

NatWest reported a 50% jump in profits over the first three months of the year to £1.9bn, while rival Lloyds reported a 46% rise in earnings. HSBC, meanwhile, tripled its first-quarter profits to $12.9bn, and Barclays revealed its largest quarterly profit since account standards changed in 2011.

Here’s the full story:

Shares in Curry’s, the electrical goods retailer, have fallen 12% to their lowest in over 20 years after it reported a fall in sales this morning.

In its annual results, titled “Strengthening UK&I offset by poor Nordics performance”, Curry’s reported that like-for-like sales fell by 7% in the year to 29 April.

Pretax profits fell by 38% to £119m, at the top end of the range of Curry’s guidance. It says its Nordics business had very challenging year, while profits rose in the UK and Ireland.

And with the economic outlook uncertain, Curry’s is lowering its cash contributions to its pension scheme and not paying a final dividend to shareholders.

CEO Alex Baldock has told reporters that Curry’s is “prudently” forecasting another tough year, with the market expecte to keep contracting in the 12 months ahead.

Baldock told shareholders this morning:

“We’ve had a very mixed year. Our strengthening UK&I performance shows our strategy is working well. But our long track record of success in the Nordics was brought to an abrupt halt.

Our market has been tough everywhere, with depressed demand, high inflation and unforgiving competition.

Chris Beauchamp, chief market analyst at IG Group, says its “bad news all round in Currys numbers this morning”.

Profits are down, revenue is lower and with the dividend gone there are even fewer reasons to hold the shares. The group’s outlook is even tougher now that the previously strong Nordic division is feeling the pinch too.

FTSE 100 hits three-month low

Anxiety over rising interest rates is weighing on shares this morning.

In London, the FTSE 100 index has dropped to its lowest level since late March, down 50 points or 0.7% at 7391 points.

European markets are also in the red, down around 1%.

Investors are digesting the minutes from the U.S. Federal Reserve’s latest meeting, released last night, which showed that Fed policymakers decided to hold interest rates steady at the June meeting to buy time and assess whether further rate hikes would be needed.

This has boosted predictions that America’s central bank will raise rates at its next meeting later this month.

Updated

A Government minister has said it is “absolutely right” that the Financial Conduct Authority (FCA) is meeting with bank chiefs today to discuss concerns surrounding interest rates for savers lagging behind the cost of mortgages.

Chris Philp, policing and crime minister, said it is “wrong” that some banks “haven’t increased the rates they pay savers commensurately”.

He told Sky News:

“I think the FCA are quite right to call them in and and raise that forcefully.

“We do need banks to behave in a way that’s fair, reasonable and is properly competitive as well.”

Bailey: Inflation will fall, but can't say when interest rates will be cut

Q: What can children expect as a result of interest rates going up, Newsround asks.

BoE governor Andrew Bailey pledges that the rise in borrowing costs will bring down inflation, saying:

“It’s already started to come down and I expect quite a marked fall in inflation, we’ll notice it.

What we have to do is set the interest rate to get it all the way down to 2%.”

Q: How long will that take?

A very good question, Bailey replies. The Bank currently thinks inflation will fall back to the 2% target towards the end of next year.

Q: When will interest rates come down?

Bailey won’t commit, saying:

“I can’t give you a date as to when interest rates start to come down because that really depends upon what happens over the period of time ahead, but getting inflation down is the most important thing that we have to do.

Andrew Bailey: I know it's difficult, but inflation is 'way too high'

You can watch Andrew Bailey’s interview with Newsround here (or show it to the kids later).

In it, the Bank of England governor explains how the BoE has four floors of gold underground, the “second largest store of gold in the world”, and that it’s job is really about money.

He says:

“We make it, we print it, we issue it – we have £80bn of bank notes in issue….

Every day around £750bn of payments get settled through the Bank of England.

Newsround point out that many children are only now learning about mortgages, as their parents are worrying about rising payments.

Q: Are you hearing that kids are struggling at home?

“Yes”, Bailey replies, before defending the current cycle of interest rate increases.

He says:

Inflation is way too high.

We have a target that prices should rise by no more than 2% [per year]. It is, sadly, above that at the moment, above 8%.

I understand it is difficult. People are having to make very difficult choices about what they buy, what they need for their lives.

Q: Are young families dealing with this the most, compared to older people ?

Andrew Bailey says that it’s true, around the world, that younger people tend to borrow more money, while people tend to have more savings more as they get older.

Bailey says he does feel the impact on younger familes, and understands the impact of higher interest rates on people.

It will have more of an effect on young people, younger families. I do understand this.

We want to get inflation back to where it needs to be, and then we can asset what level interest rates should be at.

If inflation isn’t tackled now, it gets worse, he added.

Updated

BoE's Bailey says some retailers are overcharging customers

Governor of the Bank of England Andrew Bailey
Governor of the Bank of England Andrew Bailey Photograph: Henry Nicholls/Reuters

Bank of England governor Andrew Bailey had fired a warning shot at retailers engaged in greedflation, by warning there is some evidence that retailers are overcharging customers.

Bailey has given an interview to the BBC’s Newsround programme, in which he said there are some issues to tackle on overpricing

The governor said:

If you look at petrol prices, some sellers of petrol have possibly been charging too much for it.

Regulators have an important role to play tackling overcharging, Bailey added.

It helps us with inflation, but it’s just fairer if these things are tackled.

This is having very difficult effects. So it’s important that these steps that can be taken to make things fairer, and to save money for people by doing so, are taken.

Earlier this week, the competition watchdog said drivers were paying more for petrol and diesel than before the Covid pandemic because of “weakened” competition.

Bailey also warned his audience of young people that chocolate bars are likely to keep rising in price, even if inflation falls, due to the surge in sugar prices, the BBC says.

Updated

Today’s meeting between the FCA and the UK banks looks like part of “a co-ordinated political campaign” from the government, says Philip Augar, banking writer and a former non-executive director of TSB.

Augar told BBC’s Radio 4’s Today Programme that the gap between rates for savers and borrowers has become a “hot political topic”, as mortgage rates have risen.

He explains:

The Chancellor had the bank chiefs into the Treasury a few days ago to complain about this issue.

The Treasury committee have expressed their concern. Now the watchdog are getting involved.

Q: But can the regulator actually do anything?

Augar says “it’s quite tough” for them to do things.

This issue is part of the regulator’s consumer duty, a new duty that comes in requiring banks to put the interests of customers first. That comes in at the end of this month..and does give the regulator a bit more power.

What banks will fear is anything compulsory being done, such as a special tax on banking profits, an increase in rules and regulations, or any restitution payments, Augar adds.

Introduction: UK watchdog to grill bank chiefs over ‘profiteering’ accusations

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s biggest banks are heading for a showdown with the financial regulator today, to explain why UK savings rates are lagging behind the surging cost of mortgages.

Bosses from HSBC, NatWest, Lloyds and Barclays are expected to attend today’s meeting with the Financial Conduct Authority.

The meeting comes amid rising concerns that banks are profiting by offering paltry savings rates to customers, despite 13 increases in UK interest rates since December 2021.

The FCA called the banks in as part of its investigation into the savings market, with a report due later this month. The regulator’s executive director of consumer and competition, Sheldon Mills, who will lead the meeting, also hopes it will focus minds before the FCA’s new consumer duty regulations come into force at the end of July, the Guardian understands.

The new rules will require all City firms including banks to explain pricing decisions, including how quickly they raise savings rates, and show they are acting in good faith and prioritising customer needs.

Critics of the banking sector point out that they have been much faster to raise mortgage costs than to pump up savings rates, as the Bank of England has raised interest rates to their current level of 5%.

This has helped the banks swell their net interest margins (the different between interest paid and interest received) this year.

Instant access savings accounts are a particular concern.

Data from Moneyfacts yesterday showed that the average easy access savings rate today is 2.48%, compared to 4.8% for the average 1-year fixed savings rate.

The average 2-year fixed residential mortgage rate today is 6.51%.

The banks, though, can argue that savings rates are set independently to mortgage products (the latter are priced off the market in UK government debt, or gilts).

MPs are also taking a keen interest in the banks over this issue. Earlier this week the Treasury Committee accused the high street banks of failing in their “social duty” to promote saving and instead engaging in “blatant profiteering” by continuing to offer paltry rates.

Harriett Baldwin MP, chair of the Treasury Committee, said earlier this week:

“With interest rates on the rise and our constituents feeling squeezed by rising prices, it is only right that the UK’s biggest banks step up their measly easy access savings rates.

The time for action is now.”

Mortgage borrowers face more pain in the months ahead, with some experts predicting that two and five year fixed mortgage rates could hit 7 per cent by the end of the summer, the i newspaper reports.

Yesterday, JP Morgan warned that the Bank of England might need to push interest rates to as high as 7% to tackle stubbornly high inflation, in a worst-case scenario.

The agenda

  • 8.30am BST: Eurozone construction PMI report for June

  • 9.30am BST: UK construction PMI report for June

  • 10am BST: Eurozone retail sales for June

  • 1.15pm BST: US ADP payroll report on private sector job creation

  • 3pm BST: JOLTS survey of vacancies at US firms

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